Once limited to social media, obscure internet forums, and niche publications, DAO drama has made it to Washington.
During a hearing Wednesday regarding a major crypto bill making its way through Congress, Representative Sean Casten, a Democrat from Illinois, brought up a recent squabble about governance at Uniswap DAO.
“If you agree that decentralisation involves distributing voting power among your UNI token holders,” the congressman said, “doesn’t the fact that the Uniswap Foundation can unilaterally make decisions — doesn’t that weaken any claim of it being decentralised?”
Katharine Minarek, the chief legal officer at Uniswap Labs, pushed back by stating her employer is a distinct legal entity from the Uniswap Foundation.
“I am fairly certain that the Uniswap Foundation cannot make any unilateral government governance change,” she told the hearing.
Decentralisation debate
The brief exchange suggests lawmakers are moving beyond surface-level knowledge of the crypto ecosystem and becoming more familiar with major players in the world of decentralised finance.
The House is considering new legislation that would lay out the rules of the road for crypto projects, with fewer regulations for those deemed decentralised.
The unusual discussion also demonstrates that Congress, an entity famed for its labyrinthine complexity, is now treading zone with its own complications — DAOs, the organisations that govern much of DeFi.
While the debate about what decentralisation means and how it should be legally defined is just getting started, the very fact it’s happening in Congress is a milestone for DeFi.
The Uniswap DAO is a member-run cooperative that ostensibly manages the Uniswap protocol, one of the largest Ethereum-based decentralised exchanges.
While the protocol is self-executing and largely immutable — that is, the software runs without human intervention and its core features cannot be changed — the DAO earns a cut from every transaction on Uniswap.
And investors who own the Uniswap token, UNI, control how that pot of money is spent, among other things.
But it’s just one player in the Uniswap ecosystem: there is also Uniswap Labs, the for-profit software development company that has created each version of the Uniswap protocol.
Delayed vote
There’s the Uniswap Foundation, a nonprofit funded by the DAO and “dedicated to driving the growth, sustainability and decentralization of the Uniswap community,” according to its website.
Last year, the foundation came under fire when it indefinitely delayed a highly anticipated vote on a proposal to divert a portion of Uniswap’s revenue directly to UNI token holders.
The Uniswap DAO had debated activating that so-called fee switch for years. But earlier proposals failed to advance largely due to fear they would run afoul of US securities laws.
The foundation did not provide a reason for delaying the vote, beyond stating an unnamed stakeholder had “raised a new issue relating to this work that requires additional diligence on our end to fully vet.”
‘Under the bill, would Uniswap be required to screen and verify customer identities?’
Rep. Sean Casten
More recently, Uniswap Labs released a Uniswap-branded blockchain without consulting the DAO.
A prominent, pseudonymous Uniswap DAO member who goes by Pepo made waves this year when they announced they would no longer serve as a “delegate” at the cooperative, citing the foundation’s alleged control over Uniswap affairs.
“If governance becomes a performance — if outcomes feel sculpted before they’re proposed — then we are no longer participating in decentralization,” they wrote on X.
That missive prompted a response from Uniswap Foundation executive director Devin Walsh.
She said DAO members’ participation “is essential to the success of the Uniswap ecosystem” and the foundation “takes their feedback seriously.”
Navigating this ecosystem has now landed in Congress, and Minarek, the Uniswap lawyer, and other experts were asked to clarify what the latest crypto legislation would mean for DeFi.
Required to disclose
“Uniswap has come under some criticism recently over the Uniswap Foundation having disproportionate power over other stakeholders, including by pursuing changes such as launching a blockchain without consulting your governance token holders,” Congressman Casten said during the exchange with Minarik.
Casten also pressed Minarik on the language of the bill, which would exempt DeFi protocols from regulatory oversight.
“Under the bill, as you read it, would Uniswap be required to screen and verify customer identities?” Casten asked.
“Would Uniswap be required to disclose information related to your company’s ownership, management, conflicts of interest, risk management, procedures, policies, procedures for complying with anti money laundering laws?”
Minarik said it would not, adding, “We do have other obligations.”
Huge barn door
Casten said crypto executives had not demonstrated they were eager to address lawmakers’ concerns regarding money laundering and other financial crimes.
“If we got this huge barn door that we’re just going to define this generic thing as DeFi and you can launder all your money through there, my God, why isn’t the industry saying, ‘I don’t want to be a part of that?’” Casten said, his voice rising.
“I don’t want to be a part of that,” Minarik replied.
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at [email protected].
